Earl Scheib Announces Its Fourth Quarter and Fiscal Year 2006 Results
SHERMAN OAKS, Calif.--Aug. 10, 2006--Earl Scheib, Inc. (PINK SHEETS:ESHB) reported its results for the fourth quarter and fiscal year ended April 30, 2006.Net sales for the fourth quarter of fiscal 2006 were $12,878,000, a decrease of 5.6% from the fourth quarter of fiscal 2005. This was due to one less selling day in the 2006 quarter, a weighted average five fewer retail paint shops in operation and a decrease in car volume. On a same day basis, same shop sales were down by 0.5%.
Net sales for fiscal 2006 were $48,821,000, as compared to $48,514,000 in fiscal 2005, an increase of 0.6%. The Company operated a weighted average six fewer retail paint shops during fiscal 2006 compared to 2005, with the same number of sales days in both fiscal 2006 and 2005. On a same-day basis, same-shop sales increased by 4.3%; and combined sales in the fleet and truck center and commercial coatings operations increased by $267,000 or 9.2% in fiscal 2006 from fiscal 2005.
Operating income for the fourth quarter of fiscal 2006 was $619,000, compared to $655,000 in the fourth quarter of fiscal 2005. Gross margins increased by 2.0% in the fourth quarter of fiscal 2006 compared to fiscal 2005 due primarily to decreases in materials and labor as well as a reduction in workers compensation insurance expense, due to improved experience in claims development. Selling, general and administrative expenses increased by 2.2% of sales due primarily to increased depreciation expense on computer software as a result of a Company-wide implementation of a point-of-sale system, and higher medical insurance expenses.
Operating income for fiscal 2006 was $572,000, compared to $566,000 in fiscal 2005. Gross margins increased by 0.5% in fiscal 2006 compared to fiscal 2005, while selling, general and administrative expenses increased by 0.2% of sales. Additionally, fiscal 2005 included closed shop exit and fixed asset disposal expenses of $161,000, compared to $7,000 in fiscal 2006.
Net interest expense decreased by $106,000 in the fourth quarter and decreased by $265,000 in fiscal 2006 compared to fiscal 2005 due primarily to a reduction in financing costs for the Company's credit facility. In fiscal 2006, the Company sold four retail paint shop properties for a net gain of $3,036,000 compared to the sale of one closed retail paint shop for a gain of $15,000 in fiscal 2005. Three of the shops sold in fiscal 2006 were leased back by the Company.
Overall, net income for the fourth quarter of fiscal 2006 was $2,876,000, or $0.65 per diluted share, compared to net income of $452,000, or $0.10 per diluted share, for the fourth quarter of fiscal 2005. For fiscal 2006, the Company earned net income of $2,975,000, or $0.67 per diluted share, compared to a net loss of $236,000, or a loss of $0.05 per diluted share for fiscal 2005.
Chris Bement, Chief Executive Officer and President, stated, "While the fourth quarter of fiscal 2006 decrease in car volume appears to be a blip on our previous consistent improvement in comparable-period operating results, it was the result of general economic and market factors beyond our control that are impacting many other retailers. Indications are that the sudden soaring gasoline prices plus general economic concerns are delaying consumers from spending on auto painting, especially consumers who normally purchase our lower-priced services, which negatively affected our car volume in March and April 2006. We are taking actions to counter the decrease in sales resulting from reduced car volume by increasing some of our price points since we believe that the market can absorb increased measured prices for our services and by continuing to expand our services, especially spot painting and minor collision repairs. We believe that the decrease in car volume will abate as time passes, consumers become more oriented to higher gas prices and the economic climate settles down.
"Most of our retail paint shop closures during the fiscal year were due to loss of leases. We opened one new retail paint shop during fiscal 2006 in San Jose, California. We are pleased to report that this shop is already profitable. We also are actively searching for additional retail paint shop sites in Southern California, Nevada, Arizona and Texas. It is a time-consuming task as zoning for retail paint shop locations on major streets in retail areas are difficult to locate. We do plan to open at least two new retail shops in Fiscal 2007.
"In April 2006, we tentatively settled the wage and hour class-action lawsuit originally filed against our Company in March 2000. Under terms of the settlement, the Company will pay up to $750,000. The Company's insurance carrier has agreed to fund up to $500,000 of the amount. Consequently, the Company's maximum liability under the settlement is $250,000. In July 2006, the Court granted its final approval of the settlement.
"During the past year we have worked at installing new computer software and hardware which includes point-of-sale computers in our shops. While it has taken longer and cost more than originally expected, we have it targeted for completion by the end of this calendar year. We believe that with improved and timely information from our shops, we will be able to manage the business more effectively."
Earl Scheib, Inc., founded in 1937, is a nationwide operator of 102 auto paint and body shops located in approximately 92 cities throughout the United States. In addition, through a wholly-owned subsidiary, Earl Scheib, Inc. manufactures paint coating systems that are used not only by its paint and body shops, but are also sold to original equipment manufacturers and used by architectural construction firms. For more information, visit Earl Scheib on the web at www.earlscheib.com.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995
Written and oral statements made by the Company that are not historic in nature are "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this document and in filings with the Securities and Exchange Commission. Generally, the words "believe," "expect," "hope," "intend," "estimate," "anticipate," "plan," "will," "project," and similar expressions identify forward-looking statements. All statements which address operating performance, events, developments or strategies that the Company expects or anticipates in the future are forward-looking statements.
Forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the Company's past experience or current expectations. The following are some of the risks and uncertainties that may impact the forward-looking statements: the recent trend in quarterly increases in the Company's same-shop sales may not continue or be sustainable, the impact of the Company's reallocation of management resources, the impact of the point-of-sale computer system, the effect of weather, the effect of economic conditions, the impact of competitive products, services, pricing, capacity and supply constraints or difficulties, changes in laws and regulations applicable to the Company, the impact of advertising and promotional activities, the impact of the Company's expansion of its fleet services, new product rollout, Quality Fleet & Truck Centers and commercial coatings business, the potential adverse effects of certain litigation, financing, insurance or lending constraints, and the impact of various tax positions taken by the Company. The Company undertakes no obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise.
EARL SCHEIB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter For the Fiscal Year
Ended April 30, Ended April 30,
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2006 2005 2006 2005
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Net Sales $12,878,000 $13,643,000 $48,821,000 $48,514,000
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Operating Income 619,000 655,000 572,000 566,000
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Gain on Sales of
Real Property 2,428,000 -- 3,036,000 15,000
Interest Expense 97,000 203,000 482,000 747,000
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Income (Loss)
Before Tax 2,950,000 452,000 3,126,000 (166,000)
Tax Provision 74,000 -- 151,000 70,000
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Net Income (Loss) $2,876,000 $452,000 $2,975,000 $(236,000)
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Basic Income (Loss)
Per Share $0.65 $0.10 $0.68 $(0.05)
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Diluted Income
(Loss) Per Share $0.65 $0.10 $0.67 $(0.05)
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Weighted Average
Shares
Outstanding -
Basic 4,396,000 4,390,000 4,394,000 4,384,000
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Weighted Average
Shares
Outstanding -
Diluted 4,423,000 4,410,000 4,418,000 4,384,000
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